I’m a bit behind on this due to having been focusing on other things for the past few months, but I have just caught up on a change to VAT legislation that looks like being an absolute nightmare for anyone running a small press (and indeed anyone who sells digital products).
As you may know, the whole situation with VAT on ebooks is crazy. Although the rate for paper books is zero in the UK, the rate for ebooks is 20%. The avoid this, Amazon Europe has incorporated in Luxembourg, where the rate is only 3%. This gives them a significant advantage over UK-based rivals. Other large ebook platforms do the same thing.
The powers that be in Europe have, for some time, been trying to find a way to close this loophole. The obvious thing to do would be to have a common VAT rate across the EU, but of course there’s no way that individual countries will ever agree on what it should be. So instead they have created a bureaucratic nightmare.
From January 1st, the way that VAT is levied in Europe will change. Instead of companies having to charge VAT at their local rate, they have to charge VAT at the customer’s local rate. This is called the Place of Supply rule. This means that anyone selling digital products in Europe has to register for VAT in every country, charge VAT on each sale according to the local rate, and account for all of this on a quarterly basis.
Normally this would not matter too much, because it would only affect big companies. The UK has a healthy and very sensible turnover threshold below which you do not have to register for VAT. I have never bothered for my consultancy business. I’d probably save money doing it, as I’d be able to claim VAT back on purchases, but the time involved in filing VAT returns, and the near certainty of being investigated by VAT officers who won’t believe that my clients are primarily in the USA, make it not worth my while.
Except that the new rules coming in next year have a turnover threshold of zero for digital products. Yes, that’s right. If all you do is sell one ebook, or a few knitting patterns on Etsy, or a little app you made for fun, you are required to register for VAT and file VAT returns once a quarter. Even if the tax involved is only pennies.
Because I am coming to this rather late, I don’t have a good handle on all of the implications. For example, if you sell through Amazon, it may be that what you have is a Business-to-Business relationship with a Luxembourg company rather than a Business-to-Customer relationship with each person who buys your book. My little bookstore, however, would have to start charging VAT and accounting for where customers lived. I’m also pretty sure that a crowd-funding campaign would count as Business-to-Customer.
The implications for any small company selling digital products are so horrendous that the Head of Tax at the Institute of Chartered Accountants (England & Wales) has apparently suggested that small businesses stop selling in Europe to avoid all of this mess. Except, how can you? The digital world is global by nature. The better-written platforms, such as Amazon, will at least allow you to block sales via their EU-based sites. However, there’s nothing to stop someone in, say, Finland, buying one of my books via Amazon US, or Amazon UK. If they did, I may be legally obliged to account for that, and Amazon’s systems don’t give me enough information to do that.
Right now I am desperately trying to get some tax advice as to what I can and cannot do. However, because the vast majority of people affected by this are so small that they have never registered for VAT, and probably don’t make enough to afford an accountant, finding someone able to give good advice may be quite hard.
There is a petition on change.org asking the Secretary of State for Business to provide some sort of threshold below which registration will not be required. Please sign. However, from what I have read I’m not convinced that he can do that without withdrawing from the system altogether.
There is also a plan for a Twitter campaign tomorrow morning (UK time) to try to make the government aware just how many small businesses are going to be wrecked by this legislation. Details are here. All support will be gratefully received. If you don’t have time to follow the link, please at least look out for anything containing the hashtags #VATMOSS and #VATMESS, and retweet like crazy.
Somehow I will find a way for Wizard’s Tower to stay in business in some form next year. But right now I have no idea how.